In market A, a 4% increase in price reduces quantity demanded by 2%. In market B, a 3% increase in price reduces quantity demanded by 4%. The price elasticity of demand in market A and market B are considered _____ and _____, respectively.
A) elastic; inelastic
B) inelastic; elastic
C) perfectly elastic; unit elastic
D) unit elastic; perfectly inelastic

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. For market A, the elasticity is -2%/4% = -0.5, indicating inelastic demand (absolute value less than 1). For market B, the elasticity is -4%/3% = -1.33, indicating elastic demand (absolute value greater than 1).

In Market A, a 4% Increase in Price Reduces Quantity